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Tax and Accounting Treatment of Utility and Security tokens in Switzerland

Initial Coin Offerings (ICOs) or tokens sales are widely used by blockchain start-ups as an instrument to accelerate the token distribution to the public and fund the project. Switzerland became one of the world’s leading token sale hubs due to its crypto friendly nature and advantageous legal conditions. Yet little is known about the token sale taxation and its accounting treatment.

Hanna Keskin
Jan 15, 2019 · 8 min read

In the last article we saw in brief what should investors, employees and token issuers expect in terms of taxation. While in this article we will look more closely on the taxation aspects on behalf of the token issuer.

As it has been said before, tax treatment must be defined according to the category of tokens (payment, utility, security). Also, depending on the legal relationship between the issuer and the investor, it is defined to what extent the issuer of the tokens should be taxed and to which tax the token that has been issued must be subject. An example of this would be withholding tax, a value-added tax or an issuance stamp duty. Therefore, depending on the case, the issuer can be taxed differently.

As Security Token Offerings (STOs) are about to boom this year, it is interesting to understand the taxation aspects regarding this particular type of token. Also, utility tokens, such as the Rigo “GRG” token, are still remaining the main choice for most token sales. For this article, we will concentrate our attention on these two types of tokens.

Security tokens

In the case of a security token, a contractual relationship is established between the purchaser of the token and the issuer with no reimbursement obligation for the issuer. The payments that the issuer will make to the token investors will depend on the performance of the startup’s annual earnings before interest and taxes (EBIT) or profit on the balance sheet or license income (depending on what was promised to investors as a counter value).

For example, if the token is linked to the future EBIT, according to the Swiss Federal Tax Administration (FTA), this contractual relationship is not to be considered as a loan, a mortgage, a coupon or a usufruct but it is a derivative financial instrument based on a certificate of shares without fixed expiry.

No stamp duty :

Usually, the federal stamp duty is applied to the issue and trading of securities and therefore to the constitution and circulation of capital. There are three types of stamp duty: a tax on the issue of securities, a tax on the trading of securities and a tax on the insurance premiums. In the case in point, the tax on the insurance premiums is excluded in principle because no insurance is mentioned. According to the FTA, there is also no subject to the tax on the issue of securities precisely because in the case of the sale of security tokens the share capital is not increased. Also, the tax on the trading of securities is not applied because tokens are not classifiable as securities in accordance with the law. Therefore no stamp duty should be applied.


Precisely because these are financing transactions and pursuant to art. 18 para. 2 of the Federal Act on Value Added Tax those are not qualified as a consideration, this operation is exempt from VAT. Furthermore, FTA believes that the increase in capital against the sale of tokens linked to the right to EBIT, the future results, a certain part of the sale and similar rights (such as the security tokens) are exempt from VAT pursuant to art. 21 para. 2 of the Federal Act on Value Added Tax.


The amount paid by investors is recognized as taxable income. Leaning on the provisions of art. 958b of the Swiss Code of Obligations which relates to the chronological and material distinction and the obligation of the issuer to use the funds for product development can justify the creation of a provision of the same amount. Expenses and income in this way are not attributed to the period in which the payment is made or when the funds are received but are recognized in the period in which they are generated economically according to the accrual principle. Moreover, for the principle of correlation of costs and revenues the expenses that are used to generate a certain revenue are allocated to this revenue based on time and amount. For this reason, the expenditure must be brought forward to the period in which the income attributable to the expenditure must be recognized.

A project development plan is therefore made and the provision must be dissolved over time as development costs. After completion of product development, a loss or a profit or a balanced result resulting from the loan is determined. Therefore, the amount of the provision that advances at the end of the project duration must necessarily be converted into revenue that will be taxed.

Conversely, payments to investors who purchased the token must be accounted as a financial charge (deductible from taxes) and are not subject to the anticipatory tax according to the FTA as they are not interests, dividends, incomes from interests of a collective investment scheme or interest on customer credit balances.


In the case of security tokens it is appropriate to assess the need to draw up a prospectus for most cases. According to the Swiss Financial Market Supervisory Authority (FINMA) guidelines, this token can be always considered as a transferable asset. Therefore, these tokens must comply with financial market laws. Normally for shares or bonds a prospectus is required, by extension, the same thing can be applied to a security token.

Utility token

Normally the issuer of the utility token has an obligation towards investors to use the funds collected for the purpose of developing the platform/software in blockchain, growing the network around the project or more. It is therefore not a silent participation but rather a mandate contract according to which the issuer undertakes to develop the platform in blockchain and provide token utilities to investors. An example of such utilities can be the utilities provided by the GRG token. The GRG token gives users access to the platform built on top of the RigoBlock protocol, helps to establish a meritocratic and incentives-based framework for traders, modify the fee logic and creates an incentives mechanism without additional payment or asset functionalities.

Accounting and Tax treatment:

The capital raised from the issue of the utility token should be considered as taxable income. Also, in this case, the creation of a provision of the same amount is justifiable. This provision must therefore be amortized over time under development costs. According to the opinion of the tax administration of the Canton Zug, the provision must be amortized so that the company reports a minimum annual profit of 5% of the costs. In the Canton Ticino, however, this percentage has not been so rigidly defined. The tax administration of the Canton Ticino expects reasonable earnings depending on the company’s business model.

We also need to consider the fact that many companies that are about to launch a token sale are not solely concerned with software development but have already started partnerships and carry out commercial activities and already have some revenues. Even in the case of a newly formed company, considering that the capital raised as a result of the token sale should be seen more as an anticipated income, the deferral of taxation aims to align this entry with the costs for goods and services needed to generate such revenue. In addition, the value chain in a healthy company will generate additional revenues that will be taxed as is normally the case.

As an example of such accounting treatment, let’s take a hypothetic token sale, that has raised $500k. The accounting records might be as follows:

  1. Initial accounting of the amount raised from the sold tokens:

2. Establishment of the provision:

3. Development costs incurred during the current period:

4. Release of the provision:

As in the case of security tokens, after completion of product development, a loss or a profit is determined. It is important to underline that the maximum permitted duration of the token sale is five years. So if at the end of the term there still remains a provision it becomes a taxable revenue. Therefore, even if the company has found another use for this capital, for example for a new project, the provision must be dissolved anyway and the new project will be subject to a new assessment by the tax authorities, with a new whitepaper and business plan.

VAT should be considered:

For the most part, according to the Federal Tax Administration, the activity of the issuer is to be considered a business activity subject to VAT. There is a taxable consideration pursuant to art. 18 para. 1 of the Federal Act on Value Added Tax since the issuer performs its services according to the contract with investors. It is important to define at which time the consideration is performed. If the token sale is comparable to an anticipated payment for a service that will be provided by the company in the future, VAT rises at the time of anticipated payment (at the moment of the token sale).

However, the revenue from the sale of tokens is subject to VAT only if the domicile or residence of the investor is in Switzerland pursuant to art. 8 of the Federal Act on Value Added Tax. In this case the issuer will have to pay 7.7% VAT on the taxable income to the tax authorities. Also, for this reason, it emerges the necessity to carry out the diligence of the comparisons of the investors as it is the responsibility of the issuer to be able to prove that the domicile or residence of the investor is abroad. In any case, you can choose to delegate this activity to the platforms that do it in an automated way through video identification.

No stamp duty:

No stamp duty is applied as, according to the FTA, there is no increase in participation rights or additional payments by members.


The tax and accounting measures described above might be useful for those thinking about their own token sale. Hence the approach might be different, depending on each case. That is why every token sale needs to be examined individually.

Disclaimer: This article does not constitute legal advice. As a co-founder of RigoBlock and following my research on the tax treatment of the token sale in Switzerland, I wanted to share the results which have been collected together in this article.


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